Under the Patent Law, the Chinese courts may award damages in patent infringement cases equal to the patentee's losses or the infringer's illegal gains or by reference to a patent royalty for the same patent. If a plaintiff cannot produce evidence corresponding to one of these calculation methods, the court can award an amount within the statutory limit of Rmb1 million, as set out in the Patent Law. This statutory limit is lower than the equivalent limit (Rmb3 million) set out in both the Trademark Law and the Anti-unfair Competition Law, which were revised in 2013 and 2017, respectively. As such, it is becoming increasingly important in patent cases to convince the court that the prejudice is higher than the statutory limit of Rmb1 million. Stokke AS recently managed to do this before a Zhejiang court in a lawsuit against a patent infringer.
Stokke was a Norwegian manufacturer of children's furniture and accessories. It owned an invention patent for a foldable pushchair, which was granted on 7 October 2009.
In early 2016 Stokke discovered that copycat pushchairs were being sold en masse on China's Tmall, JD and other e-commerce platforms. An investigation identified the manufacturer (Duobaobei) and the dealers of the infringing products (Dajing and Teking).
Stokke brought a patent infringement action against Duobaobei, Dajing, Teking and Tmall before the Hangzhou Intermediate Court, seeking the cessation of the infringing behaviour and indemnification of Rmb10 million.
After rejecting several of the defendants' arguments (which challenged the court's jurisdiction and the patent's validity), the court examined their respective liability and concluded that:
- Duobaobei, Dajing and Teking should bear joint and several liability; and
- Tmall, as an internet transaction platform, had fulfilled its reasonable duty of care, which did not constitute joint infringement.
In support of its damages calculation, Stokke produced the following evidence of the defendants' illegal gains:
- a notarised webpage of the defendants' online stores on Tmall and JD, including the number of transactions and buyer reviews, in order to prove the defendants' large sales;
- a request for the court to subpoena Tmall and JD's transaction records regarding the infringing products;
- the gross profit margin of listed companies in the same industry for the court's reference;
- a statistical analysis and audit based on the transaction records retrieved from Tmall; and
- buyers' reviews regarding the strong resemblance between the infringing products and Stokke's pushchairs.
The court affirmed that the transaction records of Tmall and JD indicated a total order value of Rmb46,446,458.06 between 13 April 2015 and 12 April 2017. The defendants argued that this amount should be reduced to Rmb2,954,216.11 based on the value of:
- returned goods;
- platform service and advertising fees;
- taxes;
- various expenses;
- refunds;
- the value of other commodities in tie-in sales;
- separate parts; and
- courier expenses.
The court found the methodology tenable, but held that the data provided by the e-commerce platforms did not corroborate the defendants' argument and that the figure provided was thus unsubstantiated.
The court paid special attention to the large number of buyer reviews of each allegedly infringing products on Tmall (more than 3,000 for each) and the transaction records provided by the e-commerce platforms.
The court was satisfied that the profit from the allegedly infringing products was higher than the statutory damages limit and awarded Stokke Rmb2.25 million in damages (including reasonable expenses of Rmb250,000), to be borne jointly and severally by Duobaobei and Dajing (with Teking bearing joint and several liability for Rmb20,000).
The compensation awarded in this case is among the highest ever rendered by the Hangzhou Intermediate Court.
The Zhejiang High Court upheld this decision on 4 June 2018.
This case shows that when it comes to seeking indemnification, any effort made by a plaintiff to prove the scope of infringement is likely to be appreciated by the courts. Proving the exact amount of illegal gains that should, in principle, appear on the defendant's accounting books is not absolutely necessary, as the lower courts are gaining confidence in awarding damages which exceed the statutory limit when they are satisfied that the evidence proves the actual level of prejudice or illegal gains.
For further information on this topic please contact Cindy Shu Qi Zhen at Wanhuida Peksung by telephone (+86 10 6892 1000) or email ([email protected]). The Wanhuida Peksung website can be accessed at www.wanhuida.com and www.peksung.com.
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